Bears circle Goldilocks as Aussie is tipped to slide

Glenda Kwek and Gareth Hutchens

More bears have joined the downgrading party against the dollar, with a major investment bank expecting the currency to fall to US75¢ in 12 months as enthusiasm for what was once dubbed the ''Goldilocks economy'' grows cold.

The revised forecast from Credit Suisse came as Reserve Bank deputy governor Philip Lowe said governor Glenn Stevens' comments about Tuesday's board meeting - which sent the dollar sliding down half a cent - were ''light-hearted'' and had been misinterpreted by financial markets and the media.

Mr Stevens' quip on Wednesday that the Reserve Bank had ''deliberated for a very long time'' about its rates decision and Mr Lowe's clarification on Thursday led to one of the quickest interest rate forecast revisions. ANZ economists on Thursday withdrew their August rate cut expectations after factoring in a further easing for next month on Wednesday afternoon, saying their initial revision was based on what turned out to be ''off-the-cuff humour'' from Mr Stevens.

''Well, I can confirm for you that the board deliberated for a very long time - I can also confirm for you that it always deliberates for a very long time,'' Mr Lowe said to laughter from the audience at the Global Financial Stability and Prosperity conference in Sydney.

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''They were meant to be a light-hearted remarks after what, he reports to me, was a very light-hearted introduction. I think some people in the financial markets and perhaps the press misinterpreted the intention of those remarks.''

The dollar rebounded slightly after trading below US91¢ for several hours following Mr Stevens' comments. It was buying US91¢ late on Thursday.

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Financial markets were pricing in a 46 per cent chance of a 25-basis-points rate cut in August, even though a bearish outlook for the currency was expected to reduce pressure on the central bank to ease rates further. It rose as high as 59 per cent after Mr Stevens' remarks.

While the dollar has fallen more than 13 per cent against its US counterpart since mid-April, Credit Suisse analysts said on Thursday they expected it to slip further to US87¢, a level it has not seen since July 2010.

The analysts forecast the dollar to drop to US75¢ in 12 months.

''Our feeling remains that either the dollar will continue to fall naturally or the RBA will need to give it another push with a further interest rate cut,'' Credit Suisse said.

TD Securities also revised its forecasts on Thursday. It now expects the embattled currency to trade at US90¢ by year's end and fall as low as US85¢ in 2014. It previously expected the dollar to be at US96¢ by the end of the year. The financial services provider lowered its cash rate forecast to 2.5 per cent for the same period, noting Mr Stevens' speech did not follow his usual ''glass half full'' approach.

''Secondly, the RBA board's insistence that the [dollar] remains high despite the 10 big figure correction in recent months speaks to us that the bank is determined to assist the currency lower in any means possible,'' TD Securities' Asia-Pacific Research head Annette Beacher said.

''Australian growth has not been as robust as we expected,'' Ms Beacher added in her explanation of why TD Securities was downgrading the country's full-year 2013 gross domestic product forecast from 3 per cent to 2.7 per cent.

Bank of America was similarly bearish, saying its US89¢ forecast could be too upbeat if the slowdown in Australia's largest trading partner, China, takes place faster than economists expect. Weaker commodity prices, a stronger US dollar and Australia's slower-than-expected move away from a dependence on mining investment have also weighed on the currency.